Avnet 2014 Annual Report Download - page 10

The electronic components and computer industries are highly competitive and if the Company fails to compete effectively, its revenues,
gross profit margins and prospects may decline.
The market for the Company's products and services is very competitive and subject to rapid technological advances, new market
entrants, non-
traditional competitors, changes in industry standards and changes in customer needs. Not only does the Company compete with
other global distributors, it also competes for customers with regional distributors and some of the Company's own suppliers that maintain direct
sales efforts. The Company's failure to maintain and enhance its competitive position could adversely affect its business and prospects.
Furthermore, the Company's efforts to compete in the marketplace could cause deterioration of gross profit margins and, thus, overall
profitability.
The size of the Company's competitors vary across market sectors, as do the resources the Company has allocated to the sectors and
geographic areas in which it does business. Therefore, some competitors may have greater resources or a more extensive customer base than the
Company has in one or more of its market sectors and geographic areas, which may result in the Company not being able to effectively compete
in certain markets which could impact the Company's profitability and prospects.
An industry down
-
cycle in semiconductors could significantly affect the Company's operating results as a large portion of revenues and
gross profit come from sales of semiconductors, which is a highly cyclical industry.
The semiconductor industry historically has experienced periodic fluctuations in product supply and demand, often associated with
changes in technology and manufacturing capacity, and is generally considered to be highly cyclical. During each of the last three fiscal years,
sales of semiconductors represented approximately 50% of the Company's consolidated revenues, and the Company's revenues, particularly
those of EM, closely follow the strength or weakness of the semiconductor industry. While the Company attempts to identify changes in market
conditions as soon as possible, the dynamics of the industry make prediction of and timely reaction to such changes difficult. Future downturns
in the technology industry, particularly in the semiconductor sector, could adversely affect the Company's operating results and negatively
impact the Company's ability to maintain its current profitability levels.
Failure to maintain its relationships with key suppliers could adversely affect the Company’s sales.
One of the Company's competitive strengths is the breadth and quality of the suppliers whose products the Company distributes. However,
sales of products and services from one of the Company's suppliers, IBM, accounted for approximately 13% of the Company's consolidated
revenues in fiscal 2014. Management expects IBM products and services to continue to account for roughly a similar percentage of the
Company's consolidated sales in fiscal 2015. The Company's contracts with its suppliers, including those with IBM, vary in duration and are
generally terminable by either party at will upon notice. To the extent IBM or other primary suppliers significantly reduce their volume of
business with the Company in the future, because of a product shortage, an unwillingness to do business with Avnet, or otherwise, the
Company's business and relationships with its customers could be negatively affected because its customers depend on the Company's
distribution of electronic components and computer products from the industry's leading suppliers. In addition, suppliers’
strategy shifts or
performance issues may negatively affect the Company’
s financial results. Further, to the extent that any of the Company's key suppliers modify
the terms of their contracts including, without limitation, the terms regarding price protection, rights of return, rebates or other terms that protect
or enhance the Company's gross margins, it could negatively affect the Company's results of operations, financial condition or liquidity.
The Company's non-
U.S. locations represent a significant portion of its revenue and, consequently, the Company is exposed to risks
associated with operating internationally.
During fiscal 2014 , 2013 and 2012 approximately 65% , 63% and 61%
, respectively, of the Company's sales came from its operations
outside the United States. As a result of the Company's international operations, in particular those in emerging and developing economies, the
Company's operations are subject to a variety of risks that are specific to international operations, including, but not limited to, the following:
8
•
potential restrictions on the Company's ability to repatriate funds from its foreign subsidiaries;
•
foreign currency and interest rate fluctuations and the impact on the Company's reported results of operations;
• import and export duties and value-
added taxes;
•
compliance with foreign and domestic import and export regulations, data privacy regulations, business licensing requirements,
environmental regulations and anti-
corruption laws, the failure of which could result in severe penalties including monetary fines,
criminal proceedings and suspension of import or export privileges;